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    Dollar continues gaining after bumper housing data; minutes say June unlikely

    USD

    The dollar rose ahead of the Fed April meeting minutes on Wednesday, as it continued to trade higher off the previous day’s housing data, which showed incredible double-digit growth in the sector.

    Traders, however, were impatiently awaiting the day’s ‘main course’ in the form of the Fed minutes, with many market commentators speculating that they may show symptoms of a hawkish shift in stance which could propel the dollar even higher, as it would renew the likelihood of a June rate hike.

    However, in the end the minutes added little new information and if anything were slightly on the doveish side due to the mention of many members feeling that it was unlikely the economy would show sufficient progress to warrant a June rate rise. There was also mention of increased risks from overseas in the form of Greece and doubt creeping in that the first quarter slow-down was an isolated event.

    On the hard data front, MBA Mortgage Applications fell -1.5% in week-ending May 15, whilst Department of Energy data showed a fall in crude and distillate inventories, with Gasoline falling to -2777k versus 650k expected, Crude Oil falling to -2674k versus -1750k expected and Distillates recovering to -546k, but not as much as the 400k analysts had forecast.

    EUR

    The euro continued to weaken on Wednesday after reports Greece might withhold an IMF loan repayment on June 5, if a final bailout deal with its creditors had not yet been confirmed by then.

    The comments came from Parliamentary Speaker Nikos Filis and were not necessarily the view of the entire Tsipras administration, nevertheless, they had a negative impact on markets which are becoming increasingly jittery on concerns of a Greek default, as time continues to pass without a resolution.

    The IMF is expecting a payment of 332m on June 5 followed by almost a billion per week during the summer.

    The single currency had already weakened as a result of Benoit Coeure’s comments released on Tuesday that the ECB would be front-loading its bond-buying programme ahead of the low-liquidity summer months.

    On the data front German Producer Prices dropped by -1.5% yoy vs -1.4% forecast and 0.1% mom against 0.2% estimated. Euro-zone Construction Output, meanwhile moderated marginally higher in March.

    GBP

    Sterling strengthened against the dollar on Wednesday trading at 1.5542 midway through the New York session.

    UK inflation turned negative for the first time in almost 55 years, amid the decline in food and energy prices. The annual rate of the UK CPI slid to -0.1% in April from a year earlier according to the Office for National Statistics, against expectations of 0.0%. Consumer inflation was impacted by the timing of the Easter holiday, with air and sea fares having the biggest downward pressure on the annual rate. Food prices plunged 3% in April from a year earlier while fuels and lubricants plummeted 12.3%. The core CPI, a less volatile measure as it irons out energy and food prices, dropped sharply and below market expectations to 0.8% marking the lowest level since 2001.

    With inflation well below the 2.0% target the BOE is under little pressure to hike interest rates for now. The BOE anticipates 2.0% inflation being achieved by the second quarter of 2017.

    The BOE minutes showed no real change in stance and the pound maintained its bid. As in the previous minutes two members said that they saw arguments for and against a rate hike finely balanced. Members also echoed Carney’s comment about the next policy change probably being a rise rather than a fall in rates.

    JPY

    The Japanese economy grew more than expected in the first quarter, supported by household and business spending, fuelling optimism for the outlook of the world’s third largest economy.

    Japan’s GDP grew by 0.6% in Q1 – an annualised rate of 2.4%. Economists had estimated growth of 0.4% or 1.6% annualised. Q4 was revised down to 0.3% from 0.4%. The effects of last year’s rise in the sales tax appear to be waning with spending habits above forecasts.

    Personal consumption rose 0.4% qoq, versus forecasts of 0.2%. A 0.5% gain in late 2014 was revised down 0.4%, however business spending was lacklustre rising to 0.4% versus forecasts of 0.6%. But revisions were positive ; a 0.1% fall in late 2014 is now flat.

    These results have failed to lift the yen which was trading at 121.31 per dollar in the second half of the New York session.

    USD

    The dollar rose ahead of the Fed April meeting minutes on Wednesday, as it continued to trade higher off the previous day’s housing data, which showed incredible double-digit growth in the sector.

    Traders, however, were impatiently awaiting the day’s ‘main course’ in the form of the Fed minutes, with many market commentators speculating that they may show symptoms of a hawkish shift in stance which could propel the dollar even higher, as it would renew the likelihood of a June rate hike.

    However, in the end the minutes added little new information and if anything were slightly on the doveish side due to the mention of many members feeling that it was unlikely the economy would show sufficient progress to warrant a June rate rise. There was also mention of increased risks from overseas in the form of Greece and doubt creeping in that the first quarter slow-down was an isolated event.

    On the hard data front, MBA Mortgage Applications fell -1.5% in week-ending May 15, whilst Department of Energy data showed a fall in crude and distillate inventories, with Gasoline falling to -2777k versus 650k expected, Crude Oil falling to -2674k versus -1750k expected and Distillates recovering to -546k, but not as much as the 400k analysts had forecast.

    EUR

    The euro continued to weaken on Wednesday after reports Greece might withhold an IMF loan repayment on June 5, if a final bailout deal with its creditors had not yet been confirmed by then.

    The comments came from Parliamentary Speaker Nikos Filis and were not necessarily the view of the entire Tsipras administration, nevertheless, they had a negative impact on markets which are becoming increasingly jittery on concerns of a Greek default, as time continues to pass without a resolution.

    The IMF is expecting a payment of 332m on June 5 followed by almost a billion per week during the summer.

    The single currency had already weakened as a result of Benoit Coeure’s comments released on Tuesday that the ECB would be front-loading its bond-buying programme ahead of the low-liquidity summer months.

    On the data front German Producer Prices dropped by -1.5% yoy vs -1.4% forecast and 0.1% mom against 0.2% estimated. Euro-zone Construction Output, meanwhile moderated marginally higher in March.

    GBP

    Sterling strengthened against the dollar on Wednesday trading at 1.5542 midway through the New York session.

    UK inflation turned negative for the first time in almost 55 years, amid the decline in food and energy prices. The annual rate of the UK CPI slid to -0.1% in April from a year earlier according to the Office for National Statistics, against expectations of 0.0%. Consumer inflation was impacted by the timing of the Easter holiday, with air and sea fares having the biggest downward pressure on the annual rate. Food prices plunged 3% in April from a year earlier while fuels and lubricants plummeted 12.3%. The core CPI, a less volatile measure as it irons out energy and food prices, dropped sharply and below market expectations to 0.8% marking the lowest level since 2001.

    With inflation well below the 2.0% target the BOE is under little pressure to hike interest rates for now. The BOE anticipates 2.0% inflation being achieved by the second quarter of 2017.

    The BOE minutes showed no real change in stance and the pound maintained its bid. As in the previous minutes two members said that they saw arguments for and against a rate hike finely balanced. Members also echoed Carney’s comment about the next policy change probably being a rise rather than a fall in rates.

    JPY

    The Japanese economy grew more than expected in the first quarter, supported by household and business spending, fuelling optimism for the outlook of the world’s third largest economy.

    Japan’s GDP grew by 0.6% in Q1 – an annualised rate of 2.4%. Economists had estimated growth of 0.4% or 1.6% annualised. Q4 was revised down to 0.3% from 0.4%. The effects of last year’s rise in the sales tax appear to be waning with spending habits above forecasts.

    Personal consumption rose 0.4% qoq, versus forecasts of 0.2%. A 0.5% gain in late 2014 was revised down 0.4%, however business spending was lacklustre rising to 0.4% versus forecasts of 0.6%. But revisions were positive ; a 0.1% fall in late 2014 is now flat.

    These results have failed to lift the yen which was trading at 121.31 per dollar in the second half of the New York session.


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